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Using a Control Function to Resolve the Travel Cost Endogeneity Problem in Recreation Demand Models

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  • Melstrom, Richard
  • Lupi, Frank

Abstract

This paper proposes using a control function to correct for endogeneity in recreation demand models. The control function approach is contrasted with the method of alternative specific constants (ASCs), which has been cautiously promoted in the literature. As an application, we consider the case of travel cost endogeneity in the demand for Great Lakes recreational fishing. Using data on Michigan anglers, we employ a random utility model of site choice. We show that either ASCs or the control function can correct for travel cost endogeneity, although we find that the model with ASCs produces significantly weaker results. Overall, compared with traditional approaches control functions may offer a more flexible means to eliminate endogeneity in recreation demand models.

Suggested Citation

  • Melstrom, Richard & Lupi, Frank, 2012. "Using a Control Function to Resolve the Travel Cost Endogeneity Problem in Recreation Demand Models," MPRA Paper 48036, University Library of Munich, Germany, revised May 2013.
    • Handle: RePEc:pra:mprapa:48036
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    More about this item

    Keywords

    Recreation demand; random utility model; travel cost method; travel cost endogeneity; control function; alternative specific constants; recreational fishing;
    All these keywords.

    JEL classification:

    • Q22 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Fishery
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • Q26 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Recreational Aspects of Natural Resources

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